Netflix is among the most successful stories in the world of television and technology. The company started in 1998 as a DVD- mail rental service and has now redefined the world of virtual creation, watching, and television. The CEO and co-founder of Netflix, Reed Hastings, is among the most prominent members of the Silicon Valley Technology community. The Netflix brand was built through a culture of innovation and has managed to succeed in the video-rental market under the transformational leadership of Hastings. Today, Netflix has dominated the market by offering instant streaming content to consumers. Netflix’s success can be attributed to the transformational leadership adopted by Hastings. This paper will evaluate Hastings's leadership style, how this has enabled the company to overcome various challenges, and how Hastings has managed to accomplish success in the company.
Reed Hastings’ Background and Experience
Reed Hastings is an American entrepreneur, co-founder, and chief executive officer of Netflix. Hastings was born in October 1960 in Boston, Massachusetts. He attended Buckingham Browne & Nichols School in Cambridge and graduated in 1978. He joined Bowdin College, majored in mathematics, and was later admitted to Stanford University, where he graduated with an MSc in Computer Science in 1988 (Ryan, 2013). Hastings started his first company, Pure Software, in 1991, which merged with Atria Software in 1996. Pure Atria was acquired by Rational Software in 1997, and Hastings became the Chief Technical Officer. Hastings later left the company and co-founded Netflix with Marc Randolph in 1998.
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Netflix is a media rental service that offers video-streaming services to viewers all over the world. At its inception, Netflix provided mail-order DVDs where consumers paid a monthly fee to rent the DVDs. The company's rapid growth was attributed to Hastings's innovative management strategies (Modgil et al., 2020). For example, Hastings offered high compensation and benefits packages to attract the best employees. Further, Hastings used aggressive expansion strategies by building Netflix through movie studio partnerships and marketing campaigns that portrayed Netflix as an organization that offered online services such as documentaries, films, and movies. Netflix also spread its services to the international market by shipping products and urging users to subscribe to its official online platforms.
In 2014, Hastings got the Henry Crown Leadership Award, which is usually given to outstanding leaders. Reed Hastings is married to Patrician Ann Quillin, and they have two children. Hastings is involved in various philanthropic works, especially in the education sector. Over the years, Hastings's net worth has continued to grow alongside Netflix's stock price and is currently believed to have a fortune of 5 billion dollars.
Hasting’s Leadership Style
Hastings is believed to be among the leaders who have employed transformational leadership strategies in their business establishments. Hastings stated that he was motivated to start Netflix after receiving a late 40-dollar rental fee of Apollo 13 in the 1990s. At that moment, he realized that he needed to develop a company that would have a better business model where clients would pay for the services they wanted. Essentially, this became the foundation of Netflix's business model, where users pay a monthly fee and subscribe to the services they would like to watch (Ryan, 2013). Before developing Netflix, Hastings had pursued a course in technology and developed Pure Software Company. At the time, Pure Software was among the largest software companies in the world. When developing Netflix, Hastings believed that consumers should have the convenience of renting movies at the comfort of their homes. Later, Hastings developed the idea by using new technological innovations to create an idea that allowed consumers to select and stream movies online.
Netflix is built on a transformational leadership style where leadership begins with the executives and trickles down to the employees. Transformational leadership is based on developing good relations, producing meaningful change, and creating moral decisions (Modgil et al., 2020). Transformational leaders are morally purposeful, causative, elevating, and seek meaningful change in the organization. Hasting's leadership style is based on four tenets of transformational leadership: idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration.
The aspect of idealized influence portrays leaders as role models to the followers who respect, admire, and trust them. Leaders prioritize the follower's needs and consider how their actions could affect the followers (Mandal, Diroma, Jain, 2017). Inspirational motivation is based on leaders' ability to motivate and challenge the followers to achieve the company visions. Intellectual stimulation is the ability of leaders to promote innovation and creativity among followers. Employees are allowed to ask questions and develop new ways of approaching problems by developing new perspectives. In individualized consideration, leaders coach employees to achieve personal development by offering learning opportunities and a supportive environment for growth. Hasting's leadership style is based on courage, following specific values, and believing in the employees. This transformational leadership style has enabled Hastings to deal with complex, ambiguous, and uncertain issues in the business environment (Gerzema & Johnson, 2020). Hastings portrays a sense of purpose and motivates change by articulating a strategic vision.
The development of Netflix involved taking opportunistic advantage of open space in the market. Netflix's organizational culture is based on innovation and leadership. The success of Netflix can be attributed to its ability to fill a gap that former organizations such as MySpace, AOL, and Netscape could not close. Over the years, Netflix has been able to maneuver the changing trends in the business world (McCord, 2014). Besides, the company has won the trust of content licensing firms, which allow it to access a large amount of content. Netflix provides exceptional value for the users by offering a large selection and easy-to-use interface that is affordable. Most customers access content through video streaming services hence enhancing customer satisfaction.
Challenges That Reed Hastings Overcame in His Leadership
One challenge that Hastings was facing is stiff competition from Blockbuster. Blockbuster, which was founded in 1985, had greatly revolutionized the movie rental industry. Blockbuster had opened about 4000 outlets in the US that generated about 6 billion dollars in revenue by 2004 compared to Netflix's 0.5 dollars’ revenue in the same year (Ryan, 2013). Soon, however, Blockbuster faded into oblivion due to the use of an outdated business model. In September 2010, Blockbuster had lost an estimated 1.1 billion dollars, and the management filed for bankruptcy. Subsequently, Blockbuster was acquired by DISH Network Corp at 320 million dollars in April 2011.
Another challenge that Hastings had to deal with was in 2011 when the company sought to expand its services to the international market. In the same year, the company spread into the Latin America and Caribbean regions and later went into the UK and Ireland in 2012. Netflix offered streaming services when breaking into the international market as opposed to the DVDs sold in the US (Modgil et al., 2020). Moving out of North America into Europe and Latin America presented the challenge of language barrier. In addition, some of the countries had state-owned television networks that aired culture-specific movies and programs and did not allow advertisements. Also, Netflix had to deal with different legal frameworks in various countries where studios could dictate the sale and rental purchasing terms.
Hastings also faced a challenge when Netflix sought to integrate its online services with Facebook. This project would allow Facebook users to share information regarding their viewing habits on their profiles. However, the federal government in the US prohibited this project. Besides, in September 2011, Netflix wanted to put its DVD rental business in Qwikster and focus on online streaming. Consequently, the company raised its subscription fees by 60% (Ryan, 2013). This led to a drop in consumer subscription rates by 30%. In the aftermath, Reed Hastings sent e-mails to the subscribers, apologized for increasing the subscription fees, and canceled the whole plan.
By increasing the subscription fees, the organization hurt customer loyalty. In doing this, Netflix failed to manage consumer expectations, causing a lack of loyalty and commitment among consumers. In the midst of the crisis, Netflix initiated an aggressive marketing campaign seeking to repair its relationship with the subscribers (Gerzema & Johnson, 2020). Reed Hastings led the efforts by offering a public apology to the subscribers and reversed the plan to increase the monthly streaming charges. This portrayed the company’s awareness of the need to develop good relations with consumers while in business.
Additionally, Hastings experienced strategic challenges since the company was trying too hard to innovate and invent its future. Hasting led all the risky changes that happened in the firm since he believed that the company would only succeed in the future by making strategic digital discoveries (Mandal, Diroma, Jain, 2017). The shift from providing content through mail to streaming content offered Netflix a great venue to innovate. By offering the consumers the chance to stream content online, Netflix avoided the costly warehouse charges where the DVDs were stored and costly postal fees used to send content to consumers.
Reasons Why I Believe Hastings Was Successful
Since the inception of Netflix in 1997, Hastings has transformed Netflix from a DVD-rental company to one of the world's best content streaming firms. The evolvement of Netflix can be credited to Hasting's creative and innovative mind. For example, Netflix managed to compete against Blockbuster, a company that had been established in the mid- 1980s. At the peak of its operations in 2004, Blockbuster had about 4000 stores around the US and employed more than 60, 000 employees (Ryan, 2013). Being the leading company in the market, Reed Hastings approached Blockbuster in 2000 and offered a 49% stake in Netflix to become partners. Blockbuster turned down the offer.
In the following years, Reed Hastings continued to promote Netflix as an underdog in the rental space. To capture the attention of consumers, Netflix offered more affordable and efficient services. Between 2005 and 2010, Blockbuster faded into the background as Netflix received more monthly subscribers. Blockbuster's failure can be attributed to its lack of adopting a new business strategy that would have transformed the company from an offline platform to the online one in the internet age (Modgil et al., 2020). Subsequently, Blockbuster filed for bankruptcy in 2011, citing losses, debts, and increased competition from Netflix. In this case, the transformation of Netflix can be attributed to Hastings, an entrepreneur who saw a problem in the movie market and managed to solve it. Hastings understood the market trends in the movie industry and adjusted his organization to fit into the new market.
Hasting's is also surrounded by a team of trusted personnel involved in making significant company decisions. This happens since Hasting's invests in hiring qualified personnel who can be trusted in making the best decisions. His lack of involvement in making the daily company decisions offers his employees the freedom to solve issues within the firm (Mandal, Diroma, Jain, 2017). Besides, since most of the employees come from Silicon Valley, they are not likely to make mistakes that may jeopardize the company's productivity. Hastings maintains that doing less offers the employees independence to make calculated risks.
Netflix has also maintained an organizational culture that values the input of employees in the daily company functioning. Netflix holds company culture as an essential factor that should not be distorted as the organization grows bigger. Hasting's has maintained the company culture by allowing all the workers to be involved in the decision-making process (Ryan, 2013). He believes that the organizational culture can be shaped to be the best when everyone is integrated into running the company. Having more people thinking about the company culture indicates that more brains are involved in the decision-making process.
Hasting’s success is also attributed to his reliance on teamwork from his talented employees. Despite being the CEO and co-founder of Netflix, Hastings does not believe he is the most important person in the firm. Delegating authority is at the core of Hastings's transformational leadership style. For years, Hastings has been a proponent of the value of employees in the workplace by rejecting bureaucratic processes that reduce innovation and creativity (Gerzema & Johnson, 2020). In Netflix, employees are allowed to make specific changes using their innovative and creative minds. This is viewed as a form of succession planning where Hastings prepares his employees to the day that he will not be working in the firm. When that time comes, the team of thinkers within the firm will propel the company to greater heights.
Hasting's success can also be attributed to the values demonstrated by the management. Judgment, communication, impact, curiosity, and innovation are some of the values that Netflix employees are supposed to portray (McCord, 2014). These values act as the benchmark within which employees are rewarded, promoted, or fired. Moreover, Hastings values the process of offering honest feedback to team members. For example, Netflix does not tolerate non-performing employees.
Conclusion
Since the founding of Netflix in 1998, the company has evolved from a small start-up to the multinational company it is today. The success of Netflix can be attributed to the exceptional transformational leadership style exhibited by Reed Hastings. As the CEO of Netflix, Hastings has managed to transform the organization from a rental- DVD company to one that offers content streaming services. Hasting’s transformational leadership style has enabled the company to overcome various challenges such as competition from Blockbuster, language and legal barriers in the international market, strategic issues and hurting consumer loyalty by increasing the monthly subscription fees. Despite these challenges, Hastings emerged as a successful leader by developing an innovative internet-based business model, employing a team of trusted personnel, maintaining a consistent organizational culture, delegating authority, and maintaining strict performance values. In the future, Hasting's will probably adopt a different leadership style that will enable the company to move with the changing trends in the content- streaming industry.
References
Gerzema, J. & Johnson, W. (September 15, 2020). Is CEO a two-person job? Harvard Business Review.
Mandal, G. K., Diroma, F. & Jain, P. R. (2017). Netflix: An in-depth study of their proactive & adaptive strategies to drive growth and deal with issues of net- neutrality & digital equity. IRA International Journal of Management & Social Sciences. 8(2): 152-161.
McCord, P. (January-February, 2014). How Netflix reinvented HR. Harvard Business Review.
Modgil, A., Jaiswal, A., Tyagi, P., Singh, A., Yadav, V. & Srinivas, V. (2020). Netflix- The turnaround story. International Research Journal of Engineering and Technology (IRJET). 7(4): 1612-1616.
Ryan, L. (2013). Leading change through creative destruction: How Netflix's self-destruction strategy created its own market. International Journal of Business Innovation and Research. 7(4): 429-445. https://doi.org/10.1504/IJBIR.2013.054868
